Jury Rejects U.S. Seizure of Luxury Cars From Exporters

A jury has ordered the federal government to return luxury cars, including BMWs, Mercedes-Benzes and Land Rovers, that it seized from a small Tennessee company in 2013.

Andy Wong / Associated Press

By MATTHEW GOLDSTEIN

February 23, 2017

The Mercedes-Benzes, the BMWs and the Land Rovers were largely brand new when federal agents seized them in late 2013, claiming that the small Tennessee company that planned to resell them to wealthy buyers in China was engaging in an insidious fraud.

But a federal jury in Manhattan disagreed.

It took jurors three hours on Wednesday to determine that there was not enough evidence to support a civil forfeiture lawsuit filed by federal prosecutors. The jury, in ruling in favor of the Efans Trading Corporation, ordered the government to return the luxury cars and $3 million in cash that was also seized from a company bank account.

“We are grateful that the jury saw this case for the government overreach that it was,” said Benjamin J. Razi, a partner with the law firm Covington & Burling, which represented Efans. “Even with the victory they deserved, this case took a tremendous toll on our client.”

Efans, based in Memphis, is owned by Yifan Kong and Erxin Zhou, a husband and wife who are Chinese immigrants. The government action effectively forced the couple to shut their car export business, although they still operate a tire importing company.

It was a rare courtroom defeat for Preet Bharara, the United States attorney in Manhattan. It represents something of a conclusion to an aggressive crackdown by federal law enforcement on a cottage industry of auto export companies that used middlemen and “straw buyers” to buy luxury cars from dealerships in the United States and quickly resell them for big profits in China.

The auto export companies sought to take advantage of the demand for luxury cars in China and get around efforts by manufacturers to control the number of cars sold in China and other countries.

The auto manufacturers claimed that the export firms were violating standard business practices and using deception to buy cars in the United States. They pressed federal law enforcement to crack down on the exporters. The crackdown was the focus of a 2014 article in The New York Times.

In 2015, federal prosecutors began to back away from bringing straw-buyer luxury export cases as part of an overall review of the federal government’s asset forfeiture program. Justice Department officials in Washington counseled prosecutors to either drop or settle forfeiture cases filed against auto export firms unless the authorities could find evidence of real criminality — like tax fraud or evidence that export firms had hired people using forged driver’s licenses to buy cars for quick resale in China.

A number of open civil forfeiture cases brought by federal prosecutors against auto export firms were either settled or dropped — but not the case that Mr. Bharara’s office had brought against Efans.

Mr. Razi and another lawyer at Covington, Bruce Baird, said they had asked prosecutors in Mr. Bharara’s office to drop the case in light of the Justice Department’s guidance, but to no avail.

A spokeswoman for Mr. Bharara declined to comment.

In November 2013, when Mr. Bharara’s office filed the forfeiture case, he issued a statement that said Efans had “defrauded dealerships, insurance companies and authorities in its scheme to export luxury automobiles in violation of the law.”

The jury reached a unanimous verdict in favor of Efans after a seven-day trial before Judge Katherine Polk Failla of Federal District Court in Manhattan.

In recent years, asset forfeiture proceedings have come under broad criticism because of the ability of federal and state authorities to seize property without necessarily filing criminal charges and before proving that a crime has occurred. The Justice Department under the Obama administration moved to reform some of these practices in light of that criticism.

It is not clear how the Trump administration will proceed on civil forfeiture. At a White House meeting with sheriffs from around the country, the president made an offhand remark that seemed to suggest support for aggressive state asset forfeiture laws.

The lawyer for Efans, Mr. Razi, said he hoped that Wednesday’s jury verdict would send a message to law enforcement about being judicious in seizing assets through civil forfeiture because the burden often rests on the defendants to prove they did nothing wrong.

“There is a great risk of abuse with these laws, and we hope they take that into account,” he said.